What Is Inflation Targeting?

The central bank directly targets inflation and announces its monetary policy system. Under the inflation target system, the traditional monetary policy system has undergone major changes. There is no longer an intermediate target between the policy tools and the final target. The basis for monetary policy decision-making mainly relies on regular forecasts of inflation. The government or the central bank determines the mid-to-long-term inflation target of the country in the future in accordance with the forecast in advance. The central bank uses the corresponding monetary policy tools under public supervision to make the actual inflation value match the forecast target.

Inflation targeting

(Monetary Policy System)

The central bank directly targets inflation and announces its monetary policy system. Under the inflation target system, the traditional monetary policy system has undergone major changes. There is no longer an intermediate target between the policy tools and the final target. The basis for monetary policy decision-making mainly relies on regular forecasts of inflation. The government or the central bank determines the mid-to-long-term inflation target of the country in the future in accordance with the forecast in advance. The central bank uses the corresponding monetary policy tools under public supervision to make the actual inflation value match the forecast target.

Chinese name

Inflation targeting

Foreign name

Inflation Targeting Regime

Pinyin

tong huo peng zhang mubiao zhi

Nature

Monetary policy system

Formulator

Central bank

Decision basis

Regular inflation forecasts

The basic meaning of the inflation target system is: the monetary authorities clearly take price stability as the primary goal, and announce the target inflation rate to be reached by the authorities in the future for a period of time, at the same time, through a certain

versus

In countries with inflation targeting,

Inflation targeting has many enviable advantages and inevitably has many shortcomings. It has been more than ten years since its birth, and it is generally successful in most countries that implement the inflation target system, but this does not mean that developing countries like us can completely ignore its shortcomings and adopt it. Instead, it should specifically analyze the feasibility of implementing the inflation target system in combination with China's national conditions and specific issues.

The implementation of the inflation target system has the following characteristics:

First, under the inflation target system, monetary policy promises to maintain a specific long-term inflation level, and long-term price stability will be the overriding policy objective.

Inflation targeting

Second, under the constraints of long-term inflation target values, in order to achieve other goals such as stable output, the central bank has the power to adopt flexible policies in the short term-this is the true meaning of the term "flexible inflation target".

Third, the inflation targeting system requires monetary policy makers to remain substantially open and transparent. For example, a report on the inflation situation should be published regularly and the public should participate in policy discussions. Announcing the inflation target includes not only the target value of inflation and the basis for determining it, but also the price index, target period, and type of target zone; how to achieve the inflation target in the current economic environment; deviation from the inflation target s reason.